There is an investing adage: “You either learn a lesson or make a profit; never both”. I havefound this to be true for a better part of my investing years, but as I gain more experience, I am trying to reflect and learn lessons from all my trades – from both winners and losers.

This bull market in stocks has been ongoing for a decade and most investors have forgotten what it is like to lose money and come to witness heart-stopping moments when you suddenly see your envisioned future disappear. I first started investing in individual stocks in 2008, just before the Global Financial Crisis and that was a great teacher. I try to remember the lessons I learned back then and continue to learn new ones everyday. Over the last couple of years, I decided to move a big portion of my portfolio into the precious metals and mining sector as I saw more value and the sector was hated by many. My reasoning is fairly simple: when the markets crash (and they will), most investors will seek safe havens, and there is no better safe haven than gold. There are a few other reasons, but that is the big one.

Over the last few quarters, I have been finding so many interesting prospects for investing in the sector, that I have overshot my initial target. The sector now makes 1/2 of my overall investing portfolio. Even with a few sales over the last few months, I have been hovering close to the 50% mark due to good returns. And the bull market in gold/silver mining stocks is just getting started!

While I look over the overall portfolio composition, I am being reminded of a lot of investing lessons from each trade. So, I decided that I will share some of these thoughts (including some random observations) here. Hopefully you will find the thoughts valuable & interesting.

“Buy what’s hated”

This is a different take on one of the most cliched saying “Buy when there is blood on the streets…”. Everyone says it. No one follows through. If a potential investment does not make your stomach churn and make you want to run for the hills, then it hasn’t hit rock-bottom yet. I started buying gold equities in late-2016. Even though I was about 6-9 months late to the party of catching the bottom, I am still ok with this. It is almost impossible to time the market perfectly. But as my friend Jay from FI Fighter likes to say: “You will never capture the bottom 10% or the top 10%….focus on riding the 80%”. Even today, there are plenty of investors who hate gold/silver and laugh at people who like to own “pet rocks”…which just tells me that I can continue to position appropriately before the next crisis.

“Rising tide lifts all boats”

When you get to participate in the early stages of a bull market, there is some leeway in picking the right stocks. Of course, you want to pick the best companies and hold them for a long time to grow your investment. But if you are early in a bull market, you can make a few mistakes. You can pick a few subpar companies and still come out on top. Lesson to learn here is to not mistake the bull market & liquidity flow to hubris in good stock picking abilities; or as Rick Rule puts it: “Don’t confuse bull market with brains”.

Speaking of liquidity flows…

“Earnings don’t move the overall market… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” – Stanley Druckenmiller

I have found this to be extremely true. Liquidity flow is what determines the returns in stock markets. You can own the best company in the world, but if there’s not enough followers and funds aren’t pouring in, you will end up with a Value Trap. I have experienced this play out both in my favor and against me.

This worked in my favor when it comes to Kirkland Lake Gold (KL), my largest position today. The company has been firing on all cylinders with excellent management team (chaired by none other than Eric Sprott), world-class resources, low cost productions, fantastic financials, and the list goes on. In addition, the company is cross-listed strategically — first on TSX, then cross-listed on NYSE & ASX. You will be hard pressed to find a better company in the sector today, and I believe that the company is still undervalued. Every month, analysts continue to re-evaluate and re-estimate the resources and continue to raise the price target. About a week ago, it was deemed just the Fosterville project in Australia is worth $4B, while the whole company now trades at a $4B market cap. It also helps that KL holds one of the top spots in gold-focused ETFs — a crucial aspect of liquidity flows.

I haven’t been so lucky with some of my other speculative plays such as Cordoba Minerals (CDB.V) and Sarama Resources (SWA.V) — those positions have lost most of my invested capital and are deep in the red. Thankfully, I sized those positions appropriately (more on position sizing below) and the losses were manageable and covered by the gains in my winners.

Holding & letting your winners run: Sometimes, my emotions still try to get the best of me. When you have had a good run up and sitting on massive paper gains, it is tempting to sell and book those profits. Eric Sprott had a great thought on this. To paraphrase, what he recommends is not to look backwards and look at what a stock has achieved so far and sell too early instead of letting your winners run and grow; but rather to stay forward focused; i.e., can the said company do even better and grow going forward? Kyle Bass has a good quote on this: “The past doesn’t necessarily tell you how the future will play out”.

Momentum trades: A quick note on momentum. When there is massive liquidity flow into an asset class or stock, combined with my previous point of “Rising tide lifts all boats”, it is hard to evaluate and make a quick decision on some trades. Sometimes, you just need to “fire and then aim”. Due to momentum, the price gets away from you and you then suffer from Anchoring Bias (you stop and hope that the stock price will come back to that number you first started thinking of investing at, but it never does). This has been a reality for me over the last year especially in the crypto market and the marijuana market, although the momentum has died down recently. But again, this all comes down to liquidity flow — which is where most of the money can be made.

“Bear markets are the author of Bull markets and Bull Markets are the author of Bear Markets” – Rick Rule

This one seems pretty obvious, but most of us tend to forget this. Our biases get a better hold of us and think that the good times cannot end (and likewise, bad times will not end). The deeper and worse bear markets are, the better the following bull markets tend to be and vice versa. This is not only true in the resource and commodity sector, but applies as a general investing principle.

Position Sizing

“Even the best managers in the world have difficulty with sizing positions. Positioning is very correlated to conviction level. Look at risk management in totality. Position level and portfolio level. Have position level stops or targets. Portfolio wide have risk levels of down 2%, down 5% and down 10%. Down 10% is almost mandatory risk reduction across the board to live again another day. Think about enormity of correlations when positions are large.” – Kyle Bass

Position sizing is probably the most important aspect of investing. If your portfolio is not diversified appropriately and/or you do not size your positions to fit your risk tolerance, there will be lots of pain to endure. Position sizing may not be such a problem on missed opportunities or betting too small — for e.g., if you decided to take a gamble on something and in a matter of days, you end up with a multi-bagger on a small/tiny position. You are then only left wishing that you had a bigger investment and hope to size your position appropriately next time. But the flip side is extremely dangerous. If you analyze incorrectly and take too big a position, that can lead to portfolio annihilation. I got a first-hand lesson in this last year when I initiated a position in Novo Resources Inc (NVO.V). It was a promising play on gold exploration in Western Australia, but I didn’t position appropriately. I went with too big too soon instead of buying in smaller tranches just as the stock price peaked and then dropped by almost 50% over the next few weeks/months. The good news is that the stock has recovered quite a bit and I remain invested hoping to come out on top by staying patient.

For the record, following is my ‘Metals & Miners’ portfolio — which makes approx 50% of my total investable portfolio.

Investing vs Speculation

This is something that I find most people will disagree with me. I have gotten into heated arguments on this topic in the past few months. What is investing and what is speculation? For most investors, it seems that buying stocks in large companies that have been around for a long time is “investing”. If you invest in small companies or new technologies (e.g., junior resource companies or cryptos) thats “speculation”. I vehemently disagree with this notion. There is no black-and-white when it comes to this and what is one person’s “speculation” can be another person’s “investing”. I think there is far more speculation involved in the broad markets these days than say something in junior resource sector.

Journal/Log all trades

I find that journaling/logging (blogging in my case) all trades about what I was thinking at a certain point in time is extremely valuable. The key to learning is to look back and reflect on the trades and how the thinking has evolved. Writing down the ideas and re-evaluating is a critical aspect during an investor’s journey.

These are some of the things I’ve been thinking about lately, and this is just barely scratching the surface. What are your thoughts on these investing lessons? Be sure to leave a comment below.

Roadmap2Retire is a personal finance and investment blogger. He shares his thoughts and ideas on generating enough passive income to fund his retirement and achieve financial independence. Market commentaries and investment ideas include dividend growth investing and deep value investing.